Pending
before the Court are Defendant Rhythm Engineering, LLC's
Motion for Leave to Serve Supplemental Responses to
Plaintiff's First Set of Requests for Admission and
Motion to Amend Counterclaim. (Dkt. 39, 40.) The motions are
fully briefed and the Court heard oral argument from the
parties on April 12, 2017. After review of the record,
consideration of the parties' arguments and relevant
legal authorities, and otherwise being fully advised, the
Court issues the following memorandum decision and order
granting both motions.

On
January 8, 2014, the Ada County Highway District (ACHD) and
Rhythm Engineering, LLC (Rhythm), entered into a purchase
agreement[2] for the installation of an adaptive signal
control technology (ASCT) system on roads throughout Ada
County. Adaptive signal control technology systems are made
up of hardware and software, which together, help control the
flow of traffic over busy roads.

The
Purchase Agreement between ACHD and Rhythm contained a two
year warranty. Compl., ¶ 9. Rhythm agreed to provide a
full refund if, after three months of adaptive operation,
ACHD believed the ASCT system did not reduce travel time and
emission and fuel consumption, while also improving safety.
To receive a full refund, ACHD had to: (1) collect before and
after data using the same collection method; (2) allow Rhythm
time to "fine tune" the ASCT; and (3) provide a
written list of concerns to Rhythm. Id.

The
Purchase Agreement provided specific terms for ACHD's
acceptance of the ASCT system. (Dkt. 39-5 at 7-61.) In part,
the Purchase Agreement detailed explicit terms for ACHD to
perform validation testing (VAL-T) prior to acceptance of the
ASCT system by ACHD. The last day of successful VAL-T was
also defined as the contractual acceptance date of the ASCT
system. This contractual acceptance of the system would occur
when the ACHD Traffic Engineer granted final approval of the
VAL-T process, indicating successful completion. Id.

VAL-T
involved two distinct testing processes to be completed
sequentially over 60 days. The first phase was called Systems
Communication Testing (SCT). SCT involved testing "the
virtual system server software, the system network
communications, and all other elements of the ASCT, through
the use of the client workstation in controlling all of the
project intersections." Id. at 21. The second
phase, called Field Operational Testing (FOT), involved
"observation of the two main ASCT project corridors,
State Street and Chinden Boulevard. . . . [to] ensure the
intersections on the two main corridors are operating as
required [for 60 days] in the ACHD Concept of Operations and
per the System Requirements." Id. at 22.

Between
December of 2014 and October of 2015, ACHD and Rhythm
corresponded in writing and discussed in-person problems with
the ASCT system. Compl., at ¶ 11. Rhythm attempted to
correct the system's problems; however, ACHD claims
Rhythm's attempts were not successful.[3]

On
November 9, 2015, ACHD notified Rhythm of its rejection of
the ASCT system and termination of the Purchase
Agreement.[4]Id. at ¶ 19. ACHD identified
Section C.12 of the Purchase Agreement as the basis for
termination, [5] asserting the ASCT system failed FOT three
times by failing to automatically adjust based on the traffic
conditions and reducing side street delays. Id. In
its termination notice, ACHD demanded a full refund.
Id.

Three
days later, Rhythm responded to the termination notice,
informing ACHD it did not have the right to terminate the
Purchase Agreement under Section C.12, ACHD's rejection
of the ASCT system was untimely under the Idaho Uniform
Commercial Code, and ACHD failed to comply with the
conditions of the warranty. Id. at ¶ 20. Rhythm
demanded ACHD return the ASCT system equipment within 30 days
for a refund under the warranty. On December 8, 2015, ACHD
attempted to return the ASCT system equipment to Rhythm via
Federal Express overnight delivery; Rhythm refused to accept
delivery of the equipment. Id. at ¶¶
24-25.

PROCEDURAL
BACKGROUND

On
December 16, 2015, ACHD filed its Complaint against Rhythm
asserting the following claims: (1) breach of contract; (2)
breach of express warranty; (3) breach of implied warranty of
merchantability; (4) breach of implied warranty of fitness
for a particular purpose; and (5) unjust enrichment. ACHD
seeks a full refund of the costs of the ASCT system and
attorney fees.

On
September 16, 2016, ACHD served 57 Requests for Admission on
Rhythm. (Dkt. 39-1 at 2.) After receiving an extension of
time from ACHD, Rhythm responded. Id. At issue here
is whether Rhythm may amend their admissions to request
numbers 29, 30, and 32-all which relate to the completion and
approval of VAL-T, and acceptance of the ASCT system.
Id. at 4. Rhythm contends it initially admitted
these three requests for admissions, because it relied on
ACHD's representations that VAL-T had not been completed.
Id. However, Rhythm claims later deposition
testimony and other discovery revealed the information Rhythm
relied upon was incorrect, and VAL-T had, in fact, been
completed before ACHD returned the ASCT system equipment.
Id. Consequently, because VAL-T was completed,
Rhythm contends there was a contractual acceptance of the
ASCT system by ACHD. Id. In contrast, ACHD contends
VAL-T was never completed, and there was no contractual
acceptance of the ASCT system.

Following
Rhythm's responses to ACHD's requests for admission,
the parties conducted additional discovery, including
depositions, over the next few months. Hess Decl. (Dkt. 44-1
at ¶5.) Rhythm conducted depositions of six ACHD
employees from December 7, 2016, through February 16, 2017.
ACHD deposed eight Rhythm employees between December 1, 2016,
and February 13, 2017. Four of these eight depositions took
place in Kansas City, Missouri, on February 6 and 7.
Following the out-of-town depositions, Rhythm served the
motions at issue on ACHD on the afternoon of February 7,
2017. Id.

Rhythm
contends, during the course of these depositions, it
discovered pertinent information contrary to information
previously provided by ACHD during the VAL-T process-which
Rhythm had taken at face value, and relied upon, in drafting
both its responses to requests for admissions and its
counterclaim. Most specifically, Mike Boydstun, ACHD Traffic
Operations Engineer, testified during his deposition he
believed the second phase of VAL-T process, FOT, began on
November 19, 2014, the day following completion of the SCT
phase, and continued, uninterrupted, until December 23, 2014.
(Dkt. 39-1 at 5.) It is undisputed that ACHD restarted FOT on
February 4, 2015. Id.

Rhythm
asserts the testimony from Boydstun, combined with the
undisputed FOT restart date, establishes the required 60 days
of FOT, and consequently VAL-T, was completed successfully on
February 28, 2015, contrary to ACHD's assertions that the
VAL-T testing was not successfully completed. Id.
Rhythm arrived at this date of completion based on the
following testing periods totaling 60 days:

• 35 days - FOT started on November 19, 2014, and
suspended December 23, 2014 by Jim Larsen, ACHD Supervisor of
Suspension Management.

• 25 days - FOT resumed on February 4, 2015, and
completed February 28, 2015, upon reaching 60 days with no
suspension during the second time period.

Finally,
because the last day of successful VAL-T is defined as the
contractual acceptance date of the ASCT system, Rhythm
asserts contractual acceptance of the ASCT system also
occurred on February 28, 2015. Id. ACHD disputes
these calculations and Rhythm's contractual acceptance
argument.

DISCUSSION

I.
Motion for Leave to Serve Supplemental Responses (Dkt.
39)

As part
of discovery in this case, ACHD served Requests for Admission
on Rhythm. Rhythm contends it answered three of these
requests based on incorrect calculations regarding the number
of days remaining in FOT which were provided by ACHD during
the VAL-T process. Rhythm asserts it later learned, during
discovery, the information it originally relied upon was
incorrect. Therefore, Rhythm argues it should be allowed to
amend its answers to the three requests and serve
supplemental responses which conform to the newly discovered
information.

A.
Standard of Law

Fed. R.
Civ. P. 36(b) provides in pertinent part:

Subject to Rule 16(e), the court may permit withdrawal or
amendment if it would promote the presentation of the merits
of the action and if the court is not persuaded that it would
prejudice the requesting party in maintaining or defending
the action on the merits.

Under
this Rule, a two-part test must be satisfied prior to
permitting an admission to be withdrawn or amended: "(1)
presentation of the merits of the action must be subserved,
and (2) the party who obtained the admission must not be
prejudiced by the withdrawal." Hadley v. United
States, 45 F.3d 1345, 1348 (9th Cir. 1995).

"The
first half of the test in Rule 36(b) is satisfied when
upholding the admissions would practically eliminate any
presentation of the merits of the case." Id.
"The party who obtained the admission has the burden of
proving that withdrawal of the admission would prejudice the
party's case." Id. "Courts are more
likely to find prejudice when the motion for withdrawal is
made in the middle of trial." Id. When the
motion is made during discovery, however, amendment or
withdrawal of admissions is generally an inconvenience rather
than a prejudice. See id.

Here,
presentation of the merits of the breach of contract claims
asserted by the parties depends, at least in part, on how the
factual dispute regarding completion of the VAL-T process is
resolved. Thus, presentation of the merits of this action
would not likely be subserved if Rhythm's three
admissions are not amended. Rhythm's admissions and
...

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